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First Danish cartel case with risk of imprisonment

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In April 2016 the Danish Competition and Consumer Authority (DCCA) reported a case of bid rigging in the demolition industry to the State Prosecutor for Serious Economic and International Crime (SØIK). Six companies and a number of executives from each company have now been charged. This is the first case in Denmark in which the defendants risk imprisonment due to the infringement of competition law. Prison sentences for such offences were introduced in 2013.

Facts

In Autumn 2015 the DCCA conducted dawn raids of a number of companies in the demolition industry, including Søndergaard Nedrivning, which later disclosed its participation in the cartel. The company assisted the authorities in the investigation in an attempt to obtain leniency. The SØIK investigated the case for two years with the help of the DCCA. In many cases, the DCCA investigates and makes an official decision on the merits before the SØIK gets involved in the subsequent criminal case. However, in this case, the SØIK was involved right away due to the suspicion of serious cartel activity.

It is estimated that the case revolves around 90 demolition assignments at a value of more than Dkr100 million (approximately €13.5 million). According to the SØIK, the reported sharing of prices in relation to tenders took place from May 2011 to October 2013. The cartel allegedly implied that the companies would borrow prices from each other in order to bid on a tender. The companies borrowing the prices would bid 5% to 10% higher, but bidding ensured that the general contractor would consider them next time.

Legislation

On March 1 2013 the Competition Act was amended so that cartel cases could lead to the imprisonment of executive personnel or other individuals directly involved in such activity. These rules are set out in Section 23(3) of the act and the Criminal Code. According to these rules, individuals can be punished with up to one-and-a-half years' or, in particularly aggravating circumstances, up to six years' imprisonment.

A prison sentence due to cartel activity requires the following conditions to be met:

There must be a cartel offence. Under the Competition Act, 'cartels' are agreements that entail price fixing, market or customer sharing, limitation of the production or sale, or coordination of offers. However, there is always an individual assessment of whether a case falls into these categories.

The law requires intent to enter into or participate in a cartel from the party in question. Thus, gross negligence is insufficient for a charge with imprisonment, but can result in a fine.

The cartel offence must be of a serious nature. When considering the nature of the offence, emphasis is placed on the extent of the offence and the harmful effects that it could produce. Important factors to consider include how much of the market the cartel covered and its duration.

Comment

The new rules apply only to cartel activity that occurs after the amended competition act entered into force. As the demolition cartel took place from May 2011 to October 2013, most of its activity occurred before the new rules on imprisonment were introduced in March 2013. However, as the cartel activity continued after the new rules took effect, the cartel participants risk prison sentences.

If the court hands down prison sentences, they will be the first to be handed down in a competition case in Denmark. It will be interesting to see how the court assesses the situation and applies these new rules.

In any case, the cartel participants face the risk of large fines, as fine levels were also increased with the amendment of the Competition Act in 2013. So-called 'very serious offences', which bid rigging may be defined as, will – according to the preparatory work of the amending act – lead to a minimum fine of Dkr20 million (€2.7 million) for companies and Dkr200,000 (€27,000) for individuals. However, when calculating the fines to be issued, the court must also consider that most of the cartel activity took place before the new fine levels were introduced.

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